Gas stations in Montreal increased the price of one litre of regular gas by 10 cents (9 per cent) between May 1 and 2. At the same time, the price of crude oil, the underlying commodity, actually went down by about 1 per cent in world markets. Prices elsewhere in the province and in Canada didn’t change much or drifted lower. This was just one of about 50 similar price hikes that occurred on a weekly basis in Montreal over the past year, and hundreds that took place over the past decade — and no one in authority seems to care enough to respond effectively to this situation.

For its part, the non-profit CAA-Quebec has been raising concerns for at least seven years now, and continues to do so. Its 2016 analysis of gas prices was published last month, and calls into question gas pricing in Montreal: “Quebec’s biggest market ought to be more dynamic and more competitive. On the contrary, high retail margins were observed in 2016, with market size taken into account. CAA-Quebec finds it abnormal and questionable that the Montreal market maintains margins that are higher than in some other, smaller markets in Quebec.” It also noted that prices tended to fluctuate in unison across the metropolitan area.

The federal Competition Bureau and the provincial government should be giving this situation more vigorous attention.

The pattern is easy to track: a sharp increase usually just before the weekend, followed by a steady decline in small steps in the following days. These weekly increases have no correlation whatsoever with world crude oil prices. Of course, from time to time, additional market-driven price adjustments (up or down) are made. All operators in Montreal but one (Costco) line up almost perfectly; on the day of the increase, they present identical prices to the decimal point, with only a small number of exceptions.

No other major city in North America experiences similar cartel-like price behaviour at the pump. Plotting average gas prices in Montreal generates a sawtooth pattern, which is very unusual. In Toronto and Vancouver, prices behave in a much smoother fashion and vary mostly due to changes in oil prices. This is generally true for other cities in Quebec, as well.

What is happening here?

Although prices in Montreal should be higher than elsewhere in the province (there is a 3 cent local tax and real estate prices are higher than elsewhere in Quebec), the weekly patternseems to stem from something more than market factors or simple coincidence.

Nowadays, full pricing information is available on apps and websites such as GasBuddy and Essence Montreal that were created to help customers. Ironically, technology would make it easier for all stations to settle on the same pricing. All you need is a smartphone. It also makes it much harder for the Competition Bureau to collect any evidence of price-fixing.

So what should be done? The Competition Bureau should redouble its efforts to investigate this situation. Alternatively, the Quebec government should reconsider regulating the market and setting the price at the pump. Regulation has been implemented since 2006 in the four provinces of Atlantic Canada, where committees meet periodically (usually every two weeks) and set maximum (and in some cases minimum) gas prices. It guarantees a reasonable profit for the operators, and assures that customers are paying a fair price. Gas stations can still compete by providing excellent service, clean stations and convenient stores. An attempt to legislate a somewhat similar practice in Quebec (Bill 41) failed back in 2007.

Last, what can ordinary Quebecers do? As long as this situation continues, drivers should pay more attention and be smart about their habits. Alternatively, for those who can afford it, buy an electric car. Take advantage of the generous $8,000 grant the province is giving, reduce CO2 emissions, save thousands of dollars a year on gas, and say goodbye to what appears to be arip-off.

Amir Barnea is an associate professor of finance at HEC Montréal.

Related

Comments

We encourage all readers to share their views on our articles and blog posts. We are committed to maintaining a lively but civil forum for discussion, so we ask you to avoid personal attacks, and please keep your comments relevant and respectful. If you encounter a comment that is abusive, click the "X" in the upper right corner of the comment box to report spam or abuse. We are using Facebook commenting. Visit our FAQ page for more information.

Almost Done!

Postmedia wants to improve your reading experience as well as share the best deals and promotions from our advertisers with you. The information below will be used to optimize the content and make ads across the network more relevant to you. You can always change the information you share with us by editing your profile.

By clicking "Create Account", I hearby grant permission to Market to use my account information to create my account.

I also accept and agree to be bound by Postmedia's Terms and Conditions with respect to my use of the Site and I have read and understand Postmedia's Privacy Statement. I consent to the collection, use, maintenance, and disclosure of my information in accordance with the Postmedia's Privacy Policy.

Postmedia wants to improve your reading experience as well as share the best deals and promotions from our advertisers with you. The information below will be used to optimize the content and make ads across the network more relevant to you. You can always change the information you share with us by editing your profile.

By clicking "Create Account", I hearby grant permission to Postmedia to use my account information to create my account.

I also accept and agree to be bound by Postmedia's Terms and Conditions with respect to my use of the Site and I have read and understand Postmedia's Privacy Statement. I consent to the collection, use, maintenance, and disclosure of my information in accordance with the Postmedia's Privacy Policy.